A Guide to the Customs Clearance Process

Customs clearance holds a key place in any global import-export business and supply chain management. This process validates the various taxes and duties levied by countries on goods moving across their borders to generate income, strengthen their economy, and protect their citizens. Alongside, fast and efficient customs clearance promotes smooth supply chain operations, on-time goods delivery, business growth, and customer satisfaction.

Despite the pandemic halting global trade briefly, it recoiled faster in no time and has been growing at a monthly rate of 2.6% to -1.6%. As businesses and organizations worldwide are reshaping their supply chain and management strategies to leverage the vast opportunities, customs clearance is still an obstruction for many.

Clearing customs is essentially a 4-step process but the issues can easily compound. The best way you can prevent this is by ensuring full efficiency along with proactively identifying the issues and fixing them before the goods go in transit. We are going to give you a complete tour of the customs clearance process to help you know which steps to watch.

Understanding customs processing

Customs clearance is the process of preparing and submitting the complete documents to facilitate the easy import or export of goods between different countries. It is essentially the entry step into international trade. The final customs document is proof that the concerned shipment has passed all the checks, has been rightfully paid for, and is ready to be shipped.

While the process remains almost similar for countries across the globe, you may find slight variations in terms of the method and intensity of shipment assessment, applicable regulations, or customs fees. It is also to note that customs clearance is only crucial for international shipments that cross the customs border.

Export customs clearance is required for shipments moving out of the country’s borders and the seller is primarily responsible for this process. Similarly, an import customs clearance is carried out for the shipments entering a country’s borders and the buyers are responsible for it.

Customs clearance process explained

Any international shipment has to go through the following four steps for customs clearance.

1. Documents check

The process begins with all the documents listed above being checked and reviewed thoroughly by a designated customs officer with the aim of putting all the papers in the right order.

2. Duties and taxes assessment

Once the paperwork is thoroughly verified, a customs officer begins the process of validating the consignment followed by an assessment of the applicable fees for the consignment. The conditions checked hereby include the nature of the products in the shipment, the total worth of the products, mode of shipping, chosen incoterms, and customs laws applicable for the concerned products in the importing country.

The officer ensures payment of the appropriate taxes levied over products with value outside specified taxable brackets. It is advised to get an expert customs broker for assistance with duties and taxes calculations. The brokers are primarily responsible for these payments.

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3. Payment of duties

The above step makes sure that all applicable duties and taxes for the consignment are collected on a pre-paid basis. All such payments of duties and taxes are ensured and tracked rightfully by the customs officer at every step. Here, the shipment is differentiated into two categories. DDU or Delivery Duty Unpaid marked shipments are the ones with payments due and are forwarded to independent customs brokers for payment clearance. DDP or Delivery Duty Paid marked shipments are done with all due payments in advance.

Moreover, if the shipment includes any restricted goods, then additional fees may be levied.

4. Shipment release

After the payment of all the due taxes and duties, the shipment is released by customs and allowed to move toward its destination country.

In certain cases, consignments that are not cleared for any reason are kept at designated warehouses. Such warehouses are usually operated by specific companies and the withheld shipments are charged a ‘fee’ for not possessing the required documents.

Documents required for the customs clearance process

Generally, enterprises must possess a set of paperwork for the procedure of customs clearance. However, the number of documents required here can vary according to the type of items being exchanged, country of origin, and country of export. Here is a list of the documents majorly required for customs clearance:

An Export or Import license is a vital document for beginning international trade. You may require either of these licenses depending on the nature of your transaction and the type of goods. For example, an import license is mandatory for importing restricted goods.

A Commercial Invoice presents details about the trading activity between the involved parties. It must have details like the cargo description, applicable incoterms, total shipment value, monetary info of the parties, etc. You may also keep the Pro Forma invoice ready which presents a confirmation of the agreement between the concerned trading parties. Some countries consider this invoice over the commercial invoice.

The Packing List comes with the invoice and is created by the seller. It must provide details related to the goods like type, number, volume, weight, etc. This list comes in handy for shipping companies while tracking the shipment.

The Original Bill Of Lading is required by the customs authority where it serves as proof that the shipment is in transportation.

A Bill of Entry is filed by an authorized customs broker prior to the arrival of the shipment at the port. This document helps the customs authorities to examine the shipment and begin the clearance procedure.

The Customs broker also arranges the Customs Invoice Form for you. The customs authorities set the format of this form and it's essential to have it duly filled.

You can also keep an Insurance Certificate ready to ensure coverage for any damage or loss that occurs to the shipment while in transit.

Entities involved in customs processing

The number of stakeholders involved in the customs clearance procedure can vary depending on the customs rules and regulations of the concerned country. Usually, the following are the bodies and agents involved in making customs clearance successful:

Customs department

The customs authorities play a major role in customs processing. They are authorized by the government to formulate and implement trading rules and regulations to streamline imports and exports across borders. As such, every country has its own customs department as well as a different set of import/export laws. The customs body is also responsible for collecting duties and tariffs followed by enabling the shipment of the goods.

For any shipment moving across borders, the customs body for both importing country and the exporting country gets active. The entire process takes place in a designated warehouse by the customs where the shipments are held for clearance and released afterward.

Owner of the shipment

The entity directly responsible for carrying out the process of clearance is considered the owner of the shipment. It can either be the seller, exporter, importer, or anyone else.

Customs clearance agents

Partnering with an authorized customs broker makes customs clearance a lot easier. The brokers take the responsibility of managing the liaison, maintaining communication between parties, arranging the papers, calculating the taxes, and ensuring full payment of all charges. They usually charge a fixed fee in lieu of their services and make sure everything is arranged in advance. Customs clearance agents act as intermediaries, assisting importers with customs transactions.

Carriers

Also referred to as couriers, these agents become relevant in the case of e-Commerce related shipments. There can be numerous carriers involved in the clearance process of international shipments.

The average cost for customs clearance

Depending on the type, description, declared value, and HS code, customs clearance fees can vary. The customs cost has two primary components- customs clearance fee and the duties and taxes. The Customs clearance fee is the cost incurred in arranging and submitting the documents and is payable to the customs agent. The taxes and duties are payable directly to the customs body.

If we were to distinctively list, here are the common charges included in customs clearance fees:

• Import duties
• Export duties
• Ad valorem which is a variable tax percentage as per the value of the goods
• Mixed and Compound tariffs

If your goods pass through customs clearance successfully, then you will only be charged the obligatory fees. However, be prepared for additional charges in the form of penalties or fines in case of incomplete/wrong documents or inaccurate product classification.

Tips on making customs clearance successful and easier

Customs clearance can be understood as a mandatory pass for each and every shipment set to cross international borders. Though it involves only a few steps, it can get overwhelming if you are new to the process of customs.  To help ease the burden, here are some tips that can help you sail through smoothly:

• The customs paperwork must be duly completed with 100% accuracy. You may have to pay hefty fines and penalties or deal with shipment delays in case of any incorrect documents or missing details. The penalties can also surmount in form of holding charges as the shipment will remain withheld at the customs warehouse.
• What makes this process even more crucial is the set of trade rules and legislations which differ for every country. All the stakeholders are required to be fully aware of these legislations along with the peculiarities of the process to ensure full compliance.
• Accurate classification of goods as per the Harmonized system is also critical to make customs clearance successful. Some countries rely on their unique classification systems to ensure full compliance with local customs regulations. The penalties for the misclassification of goods can significantly impact your revenues.

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You must also be prepared for extensive customs check in all the countries that the shipment passes through. This can also help you decide the most viable transportation method for the shipment to save costs and time. Preliminary checks can help you greatly with international shipments. Before your goods reach customs, you can check whether any kind of trade restrictions exist in the destination or origin country. The global trade front is very dynamic; thus, it is important to keep abreast of the import-export trends.

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Similarly, a proper understanding of the trade relations between the countries involved can give you awareness of trade agreements (if existing). Knowing the latest tariffs and duty rates can help you with adjusting the landed cost of your goods. For example, FTA or Free Trade Agreements between countries lead to significant savings on tariffs and duties.

Conclusion

Any business participating in international trade cannot take customs clearance lightly. They must closely monitor the entire process, assess the risks involved, and partner with the right customs brokers. It may also require you to take some extra steps, however, it will reward you with faster clearing times that will improve your market position and competitiveness.